Ready for taxes on services

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Tuesday, 10 January 2012
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Tuesday, January 10, 2012

Get set to pay more for travelling by railways in airconditioned coaches or an increase in monthly house rent if you are paying more than Rs 1 lakh a month. These are among a host of other services that could come under the tax net if the government goes ahead with a set of proposals that the empowered committee of state finance ministers approved in Bhopal on Monday.
The committee, headed by Bihar deputy chief minister Sushil Modi, agreed to the Centre’s proposal to adopt a “negative list” of services, implying that the government will impose tax on all other services except those that feature on the “negative list.”

In November, the finance ministry had issued a revised concept paper proposing that most services except 22 categories listed on the “negative list” should be brought under the Goods and Services Tax (GST), which the government plans to introduce in the country from April next year.

At present, only the Centre enjoys the right to levy service tax. The GST Bill, which was introduced in Parliament in March last year, seeks to amend the Constitution to empower the states to impose service tax.

Finance minister Pranab Mukherjee is likely to announce a negative list in the budget for 2012-13, highlighting the services that the Centre will not tax.
State governments, however, want the negative list to be widened (see table).
Capitation fees or donations in educational institutes, speedpost and security services provided by government agencies are some of the services that are likely to be taxed.

The services that the Centre proposes to tax include renting of land for commercial use excluding agriculture, employment agencies, highway toll collection agencies, tourist vessels and marketing of lotteries.

Funeral, burial and mortuary agencies, interest on bank deposits, services provided by independent journalists, dividend on investments, and transport of passenger in public transport, will be excluded.

“While some feel that it should be introduced at the time of GST, others feel that the introduction of the negative list should be done independently of the GST,” said a state finance minister present in Monday’s meeting.